Last week, the Society of Motor Manufacturers and Traders (SMMT) held their annual International Automotive Summit in London. A core theme that ran throughout the day’s proceedings was ‘feedback’. Across the presentations and panels, an industest that was communicative and responsive was portrayed, with speakers presenting decision-creating that was reliant on dialogue between stakeholders. This rang true across the day’s three main talking points: the new UK Industrial Strategy; geopolitics; and electrification and sustainability.
The UK Industrial Strategy
Launched ahead of the Summit, the UK government’s Industrial Strategy seeks to boost the automotive sector in the UK. It sets out to return the UK to a top 15 global manufacturing hub, which will be driven by doubling annual investment in advanced manufacturing, including automotive manufacturing, by 2035. The strategy, produced by the Department for Business and Trade, also sets the tarreceives of producing 2.2 million new vehicles annually and creating £50 billion ($68.5 billion) in value by 2030.
Industest support for the strategy was reinforced throughout the day. Mike Hawes, CEO of SMMT, commented that the strategy “rightly recognises” the importance of the automotive industest and that it provides a framework for OEMs in the UK to leverage the countest’s technology and expertise base. Similarly, Mick Aires, chair of automotive council supply chain and senior manager, supplier risk management at Sinformantis, outlined all the “key elements” that the strategy covered, including “energy, skills, investment in R&D and cash” – all of which, he argued, are integral to creating and maintaining momentum for the future of the sector. Maintaining momentum, he added, is crucial as both the domestic sector and global environment are “altering quickly”.
Such measures can be critical in encouraging OEMs to set up manufacturing sites within the UK, especially when the demand is there. For example, Victor Zhang, UK countest director for OMODA & JAECOO UK explained that local production is how Chinese OEMs reinforce their commitment to a market, and it is “just a matter of time” until production sites are announced in the UK.
However, some argued that more was required to create the UK competitive against other EU countries, with high energy costs being the primary factor. Hawes added the UK has the most expensive price for electricity in Europe, with energy taxes being “six times higher” compared to other EU countries. Such high costs can act as a deterrent for future investment from international OEMs, as well as prove a significant roadblock for domestic manufacturers. Steve Turner, assistant general secretary, manufacturing at Unite the Union similarly points to the UK’s difficulty in “industrialising” innovation as IP developments are traditionally outsourced or sold off. He also adds that a more invested and in-depth supply chain network is requireded across the UK to encourage innovators to invest in UK manufacturing.
Aires and other panellists also pointed to the willingness of the government to engage with the industest as another strength of the Strategy – the industest’s “voice has been heard,” he commented. The Rt Hon Jonathan Reynolds MP, secretary of state for business and trade and president of the Board of Trade explained in his keynote that dialogue was at the core of the strategy’s development. He stated that the sector had “given us a clear message and we acted on that message,” and that the discussions between government and industest will continue as the strategy matures.
Tariffs and trade deals
Three recent trade deals announced by the UK government were also discussed at the event – the EU, India and the US all saw new agreements finalised.
The new EU-UK deal featured relaxed pressures on automotive trade, panellists throughout the day explained, however the benefits may be limited compared to the other trade deals. Adrian Hallmark, CEO at Aston Martin Lagonda, explained that the “European Reset” was a minor improvement for UK-based OEMs in their dealings with EU competitors, but a shift in the right direction: “It protected most of the benefits that we had from being in the EU.” But, he argued, “customs processing and the speed of logistics and transport” were still roadblocks that requireded addressing, including increased clarity around rules of origin.
The benefits of the deal stretch beyond the UK’s immediate interactions with the EU, too. Anand Menon, director, UK in a Changing Europe, outlined the impacts that the new agreement could have on both inbound and outbound flows: “If you’re building a car and you’re sourcing bits from Europe, even if you’re selling them ultimately to China, Brexit will impact on that trade becaapply it creates it hard to receive those bits in.” Therefore, rerelocating costs and pressures associated with the inbound flow of components will allow OEMs manufacturing in the UK to be more competitive in other markets. Reynolds explained that this is especially pertinent given the UK’s high level of automotive exports as “80% of UK cars are exported”.
Rerelocating barriers to other markets was a key component of the trade deal with India. This deal saw the finished vehicle tariff for India drop from 100% of cost to just 10%. While such a drop is beneficial for all UK-based OEMs, Hallmark pointed out that it is “really quite significant” for low volume, high-finish manufacturers like Aston Martin or JLR. He explained that, at that price point, the vehicles would be “almost in the normal price category of a high spec premium car,” leading to increased adoption.
A similar preferential treatment for automotive trade was also a key part of the new Economic Prosperity Agreement between the US and UK – what Reynolds described as a “flagship element” after listening to feedback from the industest ahead of neobtainediations. The deal sees UK exports to the US capped at 100,000 units per year but lowers the tariffs on finished vehicles to 10%. Support was high for the deal, especially as it assists bring some clarity to an otherwise “complex and dynamic” environment, according to Hallmark.
However, there were some areas of concern. For one, there remains uncertainty as to what counts as a ‘British vehicle’; Hawes described the current outline of the rules of origin as “unclear”. He also stressed the required for more clarity around allocation mechanisms. The “volatility of production volumes” associated with altering tariff regulations, he explained, had significant implications on the supply chain, unfairly impacting tier suppliers. Clearer rulings on these factors would introduce an increased “degree of resilience” across the value chain for UK automotive stakeholders, he concluded.
Charging up to go green
Throughout the summit, the altering landscape of electrification was also discussed, especially its relationship with sustainable initiatives.
Vanessa Butani, head of global sustainability at Volvo Cars summed this relationship up as being symbiotic, rather than at odds: “Decarbonisation is not about de-growth – it’s about redefining growth for a sustainable future.” Alison Nuttall, head of sustainability global affairs at JLR, expanded on this point and explained that the introduction of EVs across the JLR fleet will lead to “rapidly declining” tailpipe emissions. This is supported by a “cultural transformation” at the autocreater, she added, that has seen sustainability placed at the centre of supply chain decision creating, leading to more sustainable sourcing and operational emission reductions. Butani also described how increased visibility across the battery supply chain has impacted sustainable initiatives at Volvo Cars. Being aware of the “huge impacts along the value chain” has led to pain points being identified and addressed.
The role of regulations in electrification was also a talking point. Reynolds explained that modifys to the UK’s ZEV mandate were actioned following feedback from the industest on its achievability. The shift saw some support – Hawes, for example, pointed to the lack of customer confidence and slow adoption rates as resulting in OEMs lagging behind the previous tarreceive.
However, some saw the shift as detrimental. Despite the “temporary relief” the modifys to the mandate offered, they were “watering down” some of the drivers that OEMs had applyd to build their electrification plans over the last decade, argued Laura Ayre, partner and ESG supply chain lead, Pinsent Masons. Similarly, there were concerns about the wider impacts that domestic regulatory modifys could have for OEMs, especially when viewed in the context of a globalised industest. Hallmark, for example, explained that differing approaches to EVs across different markets harms OEMs and their drive for electrification: “We can’t imagine having electric vehicles and engine vehicles in parallel and coping with three radically different regimes around the world.” Similar sentiments were shared by tier-1 suppliers, with David Johnson, head of public affairs at Michelin Tyre, suggesting that companies “should not be afraid” of environmental regulation and to “be careful of divergence” from regulations from other markets, chiefly the EU, to retain international competitiveness.
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